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Trump renews attack on US Fed, claiming it has stymied growth

US president says stock market would be 5,000-10,000 points higher if not for Fed

Sun, Apr 14, 2019, 18:28

Howard Schneider

US president Donald Trump: wants to name two political allies to fill two open seats on the Fed’s board of governors. Photograph: Alex Wroblewski/Bloomberg

US president Donald Trump said on Sunday that actions by the US Federal Reserve have hindered US economic growth and stock market gains by perhaps 30 per cent, and that it should begin pumping money into the economy as it did during the 2007-2009 recession.

Mr Trump’s latest broadside against the central bank, delivered via Twitter and without citing any evidence, came as European Central Bank head Mario Draghi and other international officials worried that a Fed politicised by potential Trump nominees would rattle a dollar-based global system.

“If the Fed had done its job properly, which it has not, the Stock Market would have been up 5,000 to 10,000 additional points, and GDP would have been well over 4 per cent instead of 3 per cent ... with almost no inflation,” Trump said.

“Quantitative tightening was a killer, should have done the exact opposite,” he said, referring to the Fed’s monthly withdrawal last year of up to $50 billion of the bonds it acquired during the worst economic downturn since the 1930s Great Depression.

Trump’s suggestion that the Fed return to quantitative easing would put the central bank in the position of adding monetary stimulus and expanding its presence in debt markets in an economy growing solidly and with historically low unemployment.

Hand-picked chairman

No one at the Fed, including three Trump appointees on the board of governors and Mr Trump’s hand-picked chairman, Jerome Powell, has suggested the US needs the sort of central bank help launched when the economy was in free-fall a decade ago, according to minutes of recent Fed meetings.

The Fed has already decided to halt the drawdown of its security holdings as of September after concluding that the size of its asset holdings, probably about $3.5 trillion by that point, would be adequate given the demand by commercial banks to hold central bank reserves, the public demand for cash, and the other uses to which its assets are put.

The Fed raised interest rates four times in 2018 but has also put that process on hold, leaving the target policy rate at a range of 2.25-2.5 per cent, still below historical averages.

Trump was angered last autumn when a variety of economic risks, which analysts say included slowing growth abroad, Mr Trump’s own trade policies, and communications missteps by Mr Powell, contributed to a more than 20 per cent drop in the Dow Jones Industrial Average from October through December.

That loss has been almost completely erased as the Fed shifted gears, and the Dow is now just about 1.5 per cent below the record it set on October 3rd.

Mr Trump remains peeved with Mr Powell, and indicated he wanted to name two political allies, economics commentator Stephen Moore and businessman Herman Cain, to fill two open seats on the Fed’s board of governors. – Reuters